As we get further along in life, we begin to take personal inventory. We think about our finances differently than when we were younger. Slowly, our focus begins to shift from accumulating more assets to protecting the ones we have. And concerns about security may now include a spouse and children. Among your thoughts may be the question “do I need life insurance?” Yes! Life Insurance for adults makes good financial sense, especially if you have a home, a family, and a lifestyle to protect. But a good life insurance policy can do more than just offer protection. Below, we dissect the topic of life insurance and provide you with all the information necessary to make an informed decision about choosing a life insurance plan.
What Is Life Insurance?
Life insurance is a contract held between an insurance company and a policy owner. In exchange for premium payments, the insurance company promises to provide a cash payment or payments upon death of the insured person. These payments can be paid as a lump sum or as installments to a beneficiary selected by the policy holder. Life insurance policies are generally chosen based on the needs of the policy owner and/or his or her family. There are different policy types to consider when choosing life insurance for adults. Below, we explore some popular options. But first, be sure to check out the video below for a quick tutorial on what life insurance is.
Types of Life Insurance
There are 2 major categories of life insurance:
- Term Life Insurance: Term life insurance is the type of policy where coverage has a set period of duration (or a time limit). That time period can be 5, 10, 15, 20, or up to 30 years. Upon reaching the policy expiration date, the owner can elect to renew the policy, allow the coverage to end, or transfer coverage to a permanent life insurance plan. Term insurance is often selected to meet a temporary or short-term goal and is favored for its affordability.
- Permanent Life Insurance: Permanent life insurance provides lifelong protection and the ability to accumulate cash value. Unlike term insurance, permanent life insurance will remain in effect as long as you pay your premiums.
Comparing Term to Permanent Life Insurance
When shopping for life insurance for adults, it is important to be aware of the key features that distinguish term life insurance from permanent life insurance. They are as follows:
Term Life Insurance
- Provides a death benefit for a temporary period of time
- Does not accrue additional cash benefits
- Has more affordable premiums
- Has premiums that increase once term period expires
- May use simplified, express issue, or full medical underwriting
Term life insurance policies can have guaranteed renewal, or the right to continue coverage without further proof of insurability. So after your first term ends, you will not have to answer any more health questions or go through another medical exam. They are often guaranteed convertible, meaning you have the option to convert your coverage from term to permanent without proof of insurability. These plans may also feature “return of premium.” This means if the death benefit is not paid at the end of the term, premiums can be refunded. If the policy is cancelled before the term is up, a partial refund could be available.
Permanent Life Insurance
- Provides death benefit for the lifetime of the insured person
- May have a guaranteed cash value
- May have higher premiums
- Has premiums that remain stable over the life of the policy
- Is likely to use underwriting
Permanent life insurance coverage remains in effect as long as the policy is not surrendered or lapsed. There are 3 different variations of permanent life insurance for adults that can be purchased: whole, universal, and final expense.
Whole Life Insurance
Whole life insurance is a form of permanent life insurance offering the policy holder the greatest amount of safety and security in exchange for higher premiums. The premium amounts are fixed and will remain unchanged over the life of the policy. There is also a financial component of guaranteed cash value and the ability to earn dividends. Dividends are a portion of the insurance company’s profits that are paid to policy holders, as if you were an investor or stockholder. Because dividends are related to a company’s performance, they are not guaranteed.
Universal Life Insurance
If you’re shopping for life insurance for adults, you may want to consider a universal life insurance policy. These polices have greater flexibility than whole life insurance plans. You may customize the amount of coverage and the premium amounts to suit you or your family’s needs. This means you may lower or increase premium amounts and modify the death benefit along the way to suit your current goals. You may also make partial surrenders from the account value to help with personal needs. Because these policies allow for such adjustments, a cash benefit may not be guaranteed. Your death benefit could also be reduced as a result of any withdrawals.
Final Expense Insurance
Final expense insurance is commonly known as burial or funeral insurance. It is a specific kind of whole life insurance designed to cover the cost of a funeral and/or burial and any related expenses. If you are seeking life insurance for adults, burial insurance is a great option. This is because the costs associated with handling a death have gotten so expensive. It is projected that by the year 2030, it may cost as much as $18,276 to lay someone to rest!
People often purchase final expense insurance so that funds will be specifically earmarked to cover the cost of their funeral or burial. This decision removes the emotional and financial burden from family. Final expense insurance can be purchased in addition to an existing life insurance policy. A person may choose to do this so that survivors may reserve the existing life insurance policy’s benefits for living expenses. Both regular whole life and final expense policies generally have a cash value component, whereby tax-deferred savings can build up over time. Burial insurance can have the following characteristics:
- A death benefit ranging from as little as $2,000 to as much as $35,000*
- Low-cost policies with monthly or annual premiums that do not increase over time
- An application process that makes qualifying for coverage easier than it is for traditional life insurance
- Pay-outs in addition to, and independent of, any other life insurance policy
- The option to borrow against funds with lower interest rates and no credit check
- Funds that can be used for costs outside of burial such as outstanding debt or living expenses
- An optional accelerated benefit for terminal illness
- Coverage that is both portable and non-cancellable
Why Is Having Life Insurance Important?
Life insurance for adults is important for many reasons. It can help families cover the expense of a costly funeral or burial. A good policy can pre-fund these arrangements and allow loved ones to mourn without financial worry. But when a person dies, it isn’t just burial costs that plague a family. While the person may have passed away, their debts often live on. A good life insurance policy can help preserve assets and meet other important financial needs that may become an issue with the loss of an income.
Having adequate protection helps your survivors maintain the same lifestyle they currently enjoy if you were to pass away. Cash benefits can be used to satisfy a number of bills, and they can even be used to help fund future endeavors. Check out the video below for a touching story on how one family used their life insurance policy.
What Will Life Insurance Pay for?
Upon death, proceeds from life insurance can be used to resolve a number of financial concerns. This may include:
- Replacing any lost income
- Maintaining current family lifestyle
- Retiring any debt left behind
- Paying for funeral expenses, burial costs, memorials, etc.
- Paying any outstanding medical bills or legal fees
- Providing funds for college education, a family trip, or the future start of a business
3 Ways Life Insurance for Adults Makes Financial Sense
1. Access to Accelerated Benefits
Life insurance for adults makes good financial sense for reasons beyond providing additional financial security to loved ones after death. It can provide access to cash while you are still alive. This feature is often referred to as an accelerated or living benefit.
There is a rising incidence of chronic, critical, and terminal illnesses in this country. It coincides with an overall rise in the cost of healthcare. Many Americans struggle to manage the bills that result from a serious illness. Some life insurance policies include a provision whereby you have access to cash through accelerated benefits. These benefits become available should you become terminally or chronically ill. You may access these benefits to help manage the cost of your illness and avoid debt. And you may still have enough funds left over to cover the cost of a funeral.
2. Access to Cash Benefits
Life insurance for adults provides even more financial benefits. You can borrow against your policy’s cash value in the form of a loan. You may use the funds for any purpose you decide. You may want to use the money to make a large purchase, perform a home repair, or to pay for a legal or financial problem. These loans typically have lower interest rates than loans from a traditional institution and do not require a lengthy application process.
The loan will not show up on your credit history. You may pay it back on a schedule that you’ve decided or not pay back the loan at all. Just bear in mind a decision not to repay the loan will reduce the amount of your death benefit. Unlike borrowing money from a 401K or other financial investment, the money borrowed from your cash benefit is tax exempt.
3. Earning Dividends
Recall that some types of life insurance policies for adults will earn dividends. These dividends can help enhance your finances. You may use dividends in the following ways.
Cash payment: Accept dividends through a check issued by your insurance company.
Premium reduction: Deduct the amount of the dividend from your premium payment.
Savings: Leave the dividends to accrue interest.
Enhance insurance: Use additional monies to expand or purchase additional coverage.
Who Will Be the Beneficiary?
A beneficiary is a person or entity that you name as the recipient of the cash benefit of your life insurance policy. You may select more than one beneficiary, but you must name at least one person as the primary beneficiary. It is recommended that you also name a contingent beneficiary. This person acts as a backup in the event that your primary beneficiary also passed away.
For example, your spouse is your primary beneficiary, but you and your spouse are involved in an unfortunate automobile accident. You die but your spouse survives. He or she receives the cash benefits from your life insurance policy because he or she is your primary beneficiary. But if you were both to die from injuries sustained in the automobile accident, your children would receive the cash benefits. This is because you have named them as your contingent beneficiaries.
You may also choose to name a charity or other organization as your beneficiary. Gifting cash benefits allows a donor to transfer assets from an insurance contract to help fund a cause he or she believes in. This can be done in an undisclosed manner and is generally incontestable by others.
Finally, if your primary beneficiary is deceased and you do not have a contingent person or organization named, the cash benefits will go to your estate. They will become a part of the probate proceedings. This could delay the distribution of money and result in less favorable taxation rules applying.
How Much Coverage to Buy
Shopping for life insurance for adults can leave you with a lot of questions. One might be how much coverage to buy. There is some simple math that you can do to help determine the amount of need you have. Ask yourself the following questions:
- How much money will be needed at the time of death to cover a funeral, burial, and related expenses?
- How much income may be needed to support my family once I’m gone?
- For how long might my family need support?
To answer these questions, you will have to take certain factors into consideration. What type of funeral or burial arrangements do you desire? There are lots of tools available to help you determine prices and arrive at some estimates. You may also want to include any related expenses such as legal fees or costs associated with settling your estate.
You will need to calculate things like how much debt you have outside of your mortgage. You will also need to know how much on average you spend each month for living expenses. You can’t choose the right amount of insurance if you don’t know how much money your family needs to continue their current lifestyle. As a part of that calculation you will need to understand the life of your debts and how long your family might need help. You will also need to determine if there are any other investments you can rely on.
It is always wise to buy extra insurance rather than not enough. Perhaps you want to include some extra funds to help out with college or help pay for a child’s wedding. A good insurance agent can help you figure out an appropriate amount of coverage for your family.
When to Buy Life Insurance
It is never too soon to purchase a life insurance policy. Purchasing life insurance for adults should be done as soon as possible. Life is unpredictable, and it is difficult to know if and when tragedy may strike. Having the proper protection in place will help to ensure that you and your family are well cared for should something unexpected happen. But purchasing life insurance early does not only offer sensible protection to safeguard against life’s poor timing. There are also other financial advantages (like earning dividends).
The earlier you attempt to purchase life insurance, the more likely you are to qualify. As we age, we naturally see our health begin to decline. The more health problems we accumulate along the way, the more difficult it becomes for us to qualify for a good, inexpensive life insurance policy. While polices are available to people of almost any age, seeking life insurance for adults over 50 can start to present some challenges. For example, if you have developed certain health conditions like obesity or diabetes, you may experience some extra difficulty gaining coverage.
Seeking life insurance for adults early on can help you meet your benefit goals and help save money on premiums. The younger and healthier you are, the more favorable your insurance premiums will be. Your goal may be to leave your family with a large cash payout upon your death, help fund a college education, or leave monies to start a future business venture. The sooner you purchase a life insurance policy, the quicker the value amount will grow.
Life Insurance for Adults with Disabilities
If you have become disabled, you may find it difficult to qualify for life insurance. Life insurance for adults with disabilities can be difficult to find and costly. Some companies may have coverage available, but they are permitted to consider your overall health and disability when determining how much coverage to offer you. Your health is also taken into consideration when deciding what premium amounts to charge. This may make purchasing a life insurance policy unaffordable.
The good news is that if you purchase a life insurance policy prior to becoming disabled, your existing policy may include “riders.” One such rider is known as a “waiver of premium” rider. It means that should you become totally disabled while being a policy holder, you no longer have to pay your insurance premiums. Each insurance company may have a different set of exclusions that apply.
If you are eager to get life insurance for adults, HealthMarkets is here to help! Contacting HealthMarkets is the first step toward making some good financial decisions for your future. Call (800) 917-4169 to get a free quote from a life insurance agent today, or visit our website to find an agent near you!